December 2011 represented a difficult month for the region as a whole. In part, this reflected some negative sentiment surrounding emerging markets, but it was also clear that some specifics related to the region.
The fund saw a fall in value of 9.5% over the course of the month. Although this did not compare favourably with the peer group average (which saw a decline of 9.2%), the fund did out-perform that peer group average by 7.9% when looking at the entire year.
The worst performing market was Russia, where political uncertainty contributed to a decrease of more than 10%. Putin’s political party (United Russia) was seen to have a poor election result, which was also followed by a number of domestic protests.
To a certain extent, these protests appear to have shocked the Russian authorities and political establishment. Although the situation now seems to be under control, it’s clear that there is scope for more uncertainty in the coming months.
Nevsky Capital reacted by reducing the Russian weighting during the month. The total fund allocation in Russia is now at 60.6%, with more than 10% of the fund being held in cash.
There were also problems in Hungary, where the government has come under increasing criticism in recent months. The Hungarian market saw a loss of more than 10%. The Nevsky fund managers (Martin Taylor and Nick Barnes) point to the fact that some Hungarian stocks may be undervalued. They feel, however, that they would like to see a more conciliatory tone from Orban, the Prime Minister of Hungary.
At this point in time, it can be seen that the fund is holding a significant proportion in cash. This is likely to continue, until there is clarity regarding the Euro Zone and the existing political situations, particularly in Russia and Hungary.